The Federal Budget

Budget surpluses, deficits, and the national debt

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When the government spends more in a year than it receives in revenues, it has a budget deficit. When the government's revenues exceed its expenditures, there is a budget surplus. When revenues and expenditures are equal, the budget is balanced. In the US during the seventies and eighties the US federal budget experienced a growing deficit. In the nineties this deficit eventually turned into a surplus due to a long period of economic expansion and rising incomes. With the beginning of the new century, the budget deficit re-emerged and is expected to persist for the next several years. This week we discuss the causes and consequences of the budget deficits and surpluses.

Each year that the government runs a deficit, it has to borrow to finance its deficit. It does so by issuing government bonds. Accumulation of bonds in the hands of the public constitutes a debt of the Treasury to the public. This debt is referred to as the national debt. There are significant controversies, myths, and real concerns about the size of the national debt. In our discussion we will also address the appropriate ways of measuring the national debt as well as the myths and realities of the national debt.